Play, or get played

 The life of Wimpy from the popeye cartoons just wasn't for me.  He was part of the reason I have always been a saver. Saving used to be easy when I entered the workforce 30 years ago.  My local bank in 1981 offered 30 year  bonds (to build a toll road) worth a  million dollars at maturity (about now) for 15 grand.  Now that was a tradel!!!  Even more amazing, is nobody wanted them. Conventional wisdom at the time was inflation will eat up the value of your savings and/or Gman will welch on the bond payoff.

  My parents,  relatives, teachers all thought that way. The compelling math (15 grand to a million), as presented by yours truly, didn't matter to them. What did matter, was a decades (1970's) worth of watching prices rise quickly  & the US dollar purchasing power fall dramatically.   As It turned out, locking up money long term at those double digit interest rates in the early eighties was arguably the single best trade to have made in any asset class  that whole decade. It should come as no surprise to anyone who understands the "great game", why that trade was universally despised at the time. 

   Most regular folk in the investing arena spend their time trying to spot the next trend into which the herd will stampede. If we are lucky to spot it early, have the nuts to get in, and the conviction to hold tight - the masses will pay us off when they decide to pile in - thats the goal anyway. For a select few however, its not about spotting the trend - but rather creating the trend.   Thats the gist of the "great game" as played by the uber-wealthy (Warburgs & Rockefeller's, etc).  Because this is their world, and we are just living in it - they actually create the circumstances that leads to the conventional wisdom which conditions the masses to lean the wrong way.  

  The great game is played best if 99%+ people are on one side of a trade, while a select few are on the other side. Wealth is easy to multiply under those conditions. So the question for the financial elite is how to get 99%+ on the wrong side of a trade. Well, even a fool doesn't need to touch a hot stove more than 3 or 4 times to know its going to burn. So the banksters throw 10 years of sharply rising commodity prices at the masses in the 1970's.

  The result was to condition the masses to believe they were best off storing their wealth in commodities (like Gold & silver). So, the whipped public scraped together what cash they could and threw much of it at the metals in the early eighties. The banking elite was happily taking that cash for metals & locking up all the bonds they could at those double digit interest rates. As usual, the banksters had it right & the masses were destroyed. 

Fast forward to today, a 30 year treasury worth a million dollars at maturity (in 2041)at prevailing rates would now cost north of 450k!!  As odd as it may seem, now everybody wants them. For the last 30 years people have been conditioned to believe there is nothing safer than US treasuries.   Today, pension funds, foreign countries, hedge fund managers, retired folks, you name it - they are ALL on the long side of the bond trade.

  Once again, the financial elite have everybody leaning one way. Todays bond markets (everyone is long) and precious metal markets (everyone is sold out) are so lopsided - multiplying your wealth the next 10 years is childs play.  If you understand the "great game", you know the conventional wisdom was created by the financial elite - for the purpose of getting everyone on the wrong side of the trade.The hardest part for normal folk is dismissing that conventional wisdom of "Bonds are safe" and "Gold is risky". We here at Mytwocent$ admire the diabolical genius of it all, really.

   

The banking elite know that if they hit the masses with a decade of sharply rising prices - like they did in the 1970's - the bonds everyone is paying 450k for today will plummet. Will they go all they way back down to 15K? Its certainly possible, even likely. Today's conventional wisdom of "safe" US treasuries will gradually give way to the same fears that gripped everybody in 1980. It won't matter how high interest rates go, because nobody will want anything to do with bonds after the upcoming devastation. At the same time the bond bubble is pricked - the masses will begin looking for places to stick their rapidly depreciating dollars. This is where Gold & Silver go parabolic. 

 If you want to multiply your wealth, just like the banksters do - you will need to be long Gold & Silver before the pricking of the bond bubble. That way you are in before the masses start looking to get in - its really that simple.

  Still not convinced? OK. Guess who was buying those precious metals at generational lows all thru the 90's & early 2000's. Yep, the banksters. They loaded up on gold at $300 & silver at $4 for 15 years!! Greedy bastards, they are still buying today. They got long metals at fire sale prices in preparation for the upcoming bond market rout. Once the masses are scared out of their bond holdings like they were in the seventies, the financial elite will be there to dole out their metal hoard a little a time at prices that are multiples of where they trade today. The banksters  are looking to scoop both sides of both trades (bonds & pm's) just like they did in the early eighties.  

That is how winners play, and its the essence of the Great game. You are either pitching or your catching - there is no middle ground. If you are going to play the great game - you best do it like the banksters. They understand, its a rigged game - they do the rigging. Once you come to the same realization - that its a rigged game - investment decisions like dumping bonds and getting long physical Gold & Silver right NOW become no brainers. 

GOLD War - the psychological front lines....

   We here at MYTWOCENT$ have always had a fascination with the parsing of words. Normally, you can take peoples words at face value - but when dealing with politicians and/or bankers (species both known to bend a word or two) close scrutiny is advised as nuance is always part of the equation. It is a crying shame they only give Paul 5 minutes every few months to grill this guy. In an ongoing effort to retire debt, we here at mytwocent$  would gladly pitch in 10 grand for a 90 minute pay per view between these two. In any event,  what follows here is a blow by blow translation of the conversation from Thursday between perhaps the wisest elder statesman in congress and Benny the blasphemer on a subject near and dear to our heart - GOLD. 

Ron Paul: “When you wake up in the morning, do you care about the price of gold?”

  Like any good tactician, Paul only asks questions to which he knows the answer. Of course Ben cares about the price of gold - as gold is the proverbial canary in the coal mine. The higher it rips, the more Benny & the bankers are exposed for the frauds they are. Asked a point blank yes or no question, Benny does what any experienced politico would do. He evades. He knows Paul is looking for a yes, and he knows the truth is yes, but like most bankers his first instinct is to deny others, so he stops short of saying yes with:

  Ben Bernanke: “Well, I pay attention to the price of gold. But I think it reflects a lot of things. It reflects global uncertainties. I think the reason people hold gold is as protection against of what we call tail risks, really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis then they have gold as a protection.”

 On a psychological level, Benny is working overtime. First he stops short of admitting he cares, then he openly tries to associate Gold (probably the surest thing on the planet) with uncertainty. He then proceeds to paint people who hold gold as extreme, sure he doesn't use the exact words, but look at his choice of nouns & adjectives - and what they imply. For example, "protection" implies defense (not offense),  so those looking to make a buck should look elsewhere.. "Tail" implies, no matter what comes - gold won't be needed until maybe the end of it - so we certainly don't need it today. "Risk" implies danger, bankers always like to associate gold with risk whenever possible - its no coincidence they appear in the same sentence here. "Really really bad outcomes" implies extreme and unforeseen.  "worried about the potential"  implies unlikely and extremely remote - hardly worth worrying about.  

Ron Paul: "Do you think gold is money?"

Ben Bernanke:  "No. It's a precious metal."

Of course gold is money and much more, Gold is the preeminent universal form of money. Always has been, always will be. So of course Benny does what bankers do, denies. He subtly coats the denial "no" with a known truth "its a precious metal". This has the effect of making his no seem more like a fact than an opinion - old debaters trick. What is really funny about this exchange is Paul knows Gold is money and then some, while Benny denies because he doesn't want to publicly acknowledge gold as a viable alternative to his BernankeBucks.  

Ron Paul: "Even if it's been money for 6,000 years? Somebody reversed that and eliminated that economic law?"

Ben Bernanke:  "Well, you know, it's an asset. Would you say treasury bills are money? I don't think they're money either, but they're a financial asset." 

   Benny just won't give it up. Instead he takes the opportunity to slander gold by associating it with t-bills.  First rate con job, Lumping Gold in with a losing proposition like T-bills - what fckin balls on this guy. He is trying to insinuate both T-bills & Gold are assets; when In fact, one is an asset (gold), while the other is a paper liability (promise to pay).

Ron Paul: "Why do central banks hold it if it's not money?"

Ben Bernanke:  "Well, it's a form of reserves."

   What a nice nuance by Benny,"Its a form of reserves". Thats all, just a backup plan - nothing more. Another obvious attempt at manipulating the appeal of gold downward by minimizing its importance. The longer bankers continue to bad mouth gold (thus helping to cap its price), the longer they will have to trade their Bernankebucks for something of value. While Gold is a form of reserves it is also much more. Gold is a bet against paper currency. Gold is a bet on the continued debauchery, corruption, and parasitic behavior of our elected leaders - a sure bet if there ever was one. Gold is the only chance you have of being a player after the inevitable collapse of the almighty dollar.  

Ron Paul: "Why don't they hold diamonds?"

Ben Bernanke:  "Well, it's tradition. Long-term tradition."

Ron Paul: "Some people still think it's money."

  "Tradition" …….. People do a lot of stupid, carefree, expensive things in the name of tradition.  Bankers on the other hand, do not behave out of tradition, ever. They are motivated by getting more. Always more. They hold gold (and are buying more) because they know they are on the right side of the trade. They bad mouth Gold because bankers are more shrewd (and greedy) than most, and want the trade to themselves. Do not be fooled by their words - look at their deeds. Central banks are buying - are you?   

 ****************************

  As of this writing, Gold is plumbing new highs at $1600 the ounce. While the herd (the masses) all think thats high, those of us ahead of the pack are long and still getting longer. The obscene rates at which Benny is printing up new dollars guarantees $1600 will look like a steal in a few years.  It was only 3 years ago gold was trading in the $800's. Everyone thought it was high then too. Just like today.  Even though $800 seemed high then, it seems cheap today. And so while $1600 may seem high today, history shows our perspective may be completely different in a few years time. 

What is your kingdom worth?

So you own a business - thousands of employees - highly profitable - Customers can't get enough of your product.  Then  one day Tony Soprano & his crew walk in, look around, tell you how much they like the place. They inform you they are in the business of making sure business's stay open - wink wink. 







Tony smiles and says:

 "hey, we have the same accountant - I noticed you made a lot of money  last year after expenses - and because we know you want to stay open - we think you should give us 75% of it as a - you know - insurance against a complete work stoppage - if you know what I mean". 

You think about your alternatives, and reason its best to just pay Tony - and maybe he will go away.  

After six straight years of handing Tony 3 out of every 4 dollars you make - you muscle up and tell Tony its time to renegotiate. Tony says: 

"Yeah, I was thinking the same thing - Us taking 3 out of 4 dollars you make - just doesn't work for us anymore - now we want 5 out of 6". 

 As the owner of that business, if your only choices are pay him - or close up shop - what do you do?

While you ponder the answer to that, here are some facts about the current NFL labor dispute: 

1. The NFL is just under a $10 billion dollar a year business

2. 4 billion comes from TV rights, 6 billion from Gate & Merch

3. The expiring contract had revenues split 55/45 owners/players

4. The owners still have to pay coaches, stadiums, merch cost, refs, equipment, Insurance, taxes, and the day to day expenses out of their 55% - while players pay none of it. 

5.   The owners claim those things cost 4 billion of their 5.5b share, leaving them about 1.5b. 

6.  So, players take home $4.5b, the owners get $1.5b, stated another way 3 out 4 for the players - the way it stands today.  

7. The players are looking to get their end raised to 50% 0r $5 billion, leaving the owners to get $1 billion.

8. In other words, the players are not content  with 3 out every 4 dollars in after expense revenues, they want 5 out of 6 instead. Just like Tony Fuckin Soprano.

  As you can now see, there is NO significant difference between the Soprano business shakedown & the NFL labor dispute. The numbers are the same.  Admittedly, its difficult to feel sorry for Billionaire NFL owners - but it is their kingdom at stake.  

  With the players getting 3/4 now, it seems the players are already over paid.  This is why the owners are willing "to go to the mattresses". Their pockets are deeper, my guess is their resolve is deeper also. They will tell Tony, I mean the players to go fuck themselves, The owners will get what they want - a larger overall share. 

To put a number on the current gap, the two sides are about a billion apart. If they each give about half - you are only talking about 5% of revenues . Seems silly, either side would flush a whole season over 5% of revenues.  

  We here at mytwocent$ are of the opinion cooler heads will prevail. A deal will get done without any loss of regular season games. There is simply too much $$ at stake. When the deal is struck, both sides will claim  victory by pointing to different parts of the deal. For example, they could up the players share to 4/5 - if the owners get revenue deductions for stadium costs. Both sides could claim victory.  In fact, they should throw the fans a bone too - can you say 18 game season?  

Are you ready for some Football - Or what?                                                            

Commodity markets & how to play them.

  A guy named Moe calls you with a business deal. He says put up 100 grand for 25% stake in a widget company. He tells you how the company will be building widgets for 50 cents, while the wholesale market is paying a dollar.  Sounds like a no brainer, until you meet him and  his two partners Larry & Curly.  At this point, most people I know would not come up with the 100k, even if they could. No sane person would willingly go into business with stooges - no matter how compelling the business model may seem. Now Imagine a second example. Same widgets, Same risk,  Same rewards, but this time the phone call comes from Warren Buffet , Mark Cuban, & Bill Gates.  Most people I know, would be looking for ways to beg, borrow, or steal 100k just to get a piece of that deal.

The only difference between the two deals is the "structure". In other words, who is on your side of the trade. Stooges or moguls? Structure is very often overlooked by most people,  who spend their time looking at other fundamentals like risk, price, model, return long before ever considering structure. While that thinking might fly in the stock & bond world, In the commodity world (read Gold & Silver) STRUCTURE is everything. Nothing else even rates - not price - not risk - nothing!!

If you haven't traded in the silver market before, the best way of following the structure is to familiarize yourself with the commitment of traders reports, the COT for short. In any industry, its the insiders - the people who deal in it everyday -that know which way a market is headed. Because its their business to know, they have the most accurate info on which to trade. The COT calls these folks the "commercials" - think moguls. Another group tracked are the "speculators".  These are people with no connection to the industry,  just looking to make a quick buck - think stooges. The COT is kind enough to split the speculator camp into large specs (hedge funds), and the small specs (gen public).  COT tracking of positions of these different groups (commercials & specs) over time enables us to get a feel for the structure of the market.

  If you are a veteran of the silver market, then you know back in the eighties the general public was getting long in a big way. They came in with rolls of cash and walked out with bricks of silver. So many bricks in fact,  we were routinely buying bullion off Banks and selling it to the public. The cash was going uphill to the suits from the public, while metal went downhill from the suits to the public. More than enough time has passed to see who got the best of that trade. Anyone who got long metals in the eighties was annihilated.  The suits, as usual,  cleaned up. 

  About 1990, after a ten year ride from $50 down to $5 where the public was getting long the whole time, The structure of the silver market changed. The public began selling as much, or more silver than they were buying. By the mid nineties there were 20 sellers for every buyer. The public sold relentlessly, right on cue at the bottom,  for 15 years straight into the teeth of one of the biggest generational bears in our lifetime. About 2005-06 there was another major structural change. The ratio of buyers to sellers became more balanced. 

This makes perfect sense if you look at structure as a pendulum that swings a generation at a time. Lets review the general publics behavior in silver for the last 30 years. 1980's was all buyers & no sellers (one extreme). Early nineties things balanced out (pendulum is back at 6 o'clock) and then began 15 years of all sellers (other extreme). 2005-06 market back in balance again (pendulum back at 6 o'clock). The last few years we are starting to find more & more buyers of silver - as the pendulum heads back to the all buyers extreme. This is how commodity markets function - they swing from one extreme to the other in structure - over and over again in generational long swings. 

I'm not sure where I heard it, but every deal made has two players - a fool and a thief. If you are going to play in the commodity world and expect to make a buck, you best align yourself with the thieves.  Problem is, thieves aren't exactly known for transparency; so how do we find out what they are doing? Its a fact, a select few (read: thieves) make all the money in commodities and they do it trading opposite the masses (the fools). Its the suits who bought up all the publics silver from 1990 thru 2005. Now that the pendulum is swinging back it will be those same suits (who are long now and still getting longer) that will be selling - and the public, I mean fools,  who will soon be looking to get long en masse. Thats an enviable position those suits are in as anybody who understands structure knows, that trade can only end one way. The only question is, how many zeroes will silver add to its price as the structure pendulum asserts itself & the general public becomes relentless buyers over the next decade? I have given a lot of thought to that very question.  In 2003, with silver at $4, I decided the answer was 3 zeroes. It has added one already - still time for you to snag a couple for yourself over the next decade. 

Confessions of a never convicted Felon

Gambling is not as destructive as war or as boring as pornography. It is not as immoral as business or as suicidal as watching television. And the percentages are better than religion. - Mario Puzo


   I have always held a special place in my heart for sports betting and the people in that market. When you bet a sporting event you are given the illusion of choice (power?) in determining your fate. Then follows a couple hour unscripted drama complete with heroes & goats. When you are on the right side, the high is, well, orgasmic. When you are on the wrong side, well there are always the goats to blame. Sports betting does reside among lifes -EV behaviors. Your losing wagers cost you an extra 10 percent (on straight bets), while your winning wagers are free. So, if 50% of your bets are losers and the other 50% winners, in effect you are giving up 5% to the house with every wager. 5% doesn't sound like much - but give a banker 5% and enough time - and he will own the planet. In theory, the man who can pick 53% winners and 47% losers has the 5% covered. Sounds easy, after all a monkey with a purple crayon should be good for 50%. In reality though, the math is against you and as we all know, math is even less forgiving than, say, Lord Vader.


As an action junkie who wanted to be on the right side of the math, I did the only logical thing I could do.  I became a bookie. I didn't have a lot of clients - maybe it peaked at 30 - but there were some ballers on my client list. 5 figure envelopes were common place.  What fascinated me though, was not the money (which rolled in), - but rather the behavioral betting patterns of my clients.  You had "the chasers".  They would stick a toe in on saturday with a few $100 college football wagers - if they won - they would bet light all weekend - nursing a win so to speak. Its when they lost, the real fireworks started. Sunday Mornings when these people were behind they'd call in a $500 wager or two - trying to get unstuck. By Sunday afternoons, it was a Grand on this team, another grand on the under - $500 parlay or two - and before you know it - they would be stuck 3-4-5 grand.  This was the routine for these people. By Monday night their nuts were in a vice - week in, week out. Some weeks they escaped - other weeks they got buried. Their cousins "the pressers" have the exact opposite problem. They can't stand prosperity. Win a couple of bets for hundred each, and in their mind they are hot and now have a license to bet $500 a game. Win those and they are betting a grand a game. Eventually their hot streak cools, they pick a loser or two - and now they too are stuck. Then there are the habituals. They bet the same way every week. There is value in knowing ahead of time what your client likes.  If I know a guy likes Monday night dogs, why not put the line at 3 instead of 3.5? That half point doesn't usually come in to play - but when it does, its free money. Speaking of half points, and just to show it wasn't all wine and roses as a bookie I present the following:


1997 superbowl Patriots-Packers. When the line was first released the Pack was favored by 14. As the week before the game progressed, bets started to come in on the Patriots, and then more on the Patriots. In fact by Saturday morning (30 hours to kickoff) I had over 22 grand on the Pats catching 14 and a paltry $450 on the Packers. At the time, I had some regulars who I knew wanted the packers - but I was worried they might take their action elsewhere.  So I did what any reasonable businessman would do…… I offered the Packers -13.5.  The packer money piled in - big time.  Parlay this, tease that, yeah two of those , three of that. Before you knew it I had close to 25 grand on the packers.  I had to go back to 14, just to stop the flood. At kickoff, I had 30k on the Pack & $29,500 on the Pats, and I was looking forward to a 3 grand payday - as long as that 1/2 point didn't matter. First half went smooth, Packers up 13.  Patriots put up a quick touch to start the 2nd half - followed by a bolt of lightning. The Pack (Howard) returns the ensuing kickoff for a touchdown and then decide to go for 2, which of course they get. So now they are up 14.  The problem with 14 is I have to pay the Packer betters who laid 13.5, but I can't collect Patriot money which ties at +14. Good news is They have the rest of the third and the whole fourth to get off 14. They had already scored 56 points combined - surely there would be more scoring in a quarter and a half. Uh no. It got so bad, the Packer field goal kicker (Jacke)-who had a pro bowl 30 for 32 regular season - missed a chip shot 33 yd field goal late. The game ended 35-21 &  I lost 30k on that sick 1/2 point beat. 


   When you are a bookie one of the things you strive for, just like in life, is balance. Equal amounts on both sides = risk free payday for the book. When you are a major casino or sportsbook, because of the large number of people betting every game, balance is usually a given. When you are a small outfit, like I was, there were many games where I had big bets on only one side. When I first started out the lack of balance used to bother me. What I came to understand about lopsided situations, is they are fraught with risk - but also opportunity. The wealthiest people on the planet are invariably people on the right side of a lopsided trade. For example, Paul Mcartney is worth zillions because millions of people will pay money for his albums. He is on one side of the trade - the masses are on the other - he gets rich. As a bookie, its the same way. When the masses all bet one way - the game (and wealth) invariably goes the other. The herd always loses. This lesson was valuable as a bookie, but in the investing arena recognizing lopsided trades is priceless. Today I am no longer a bookie, in fact I haven't done it in close to a decade. Online books took many of my clients, the rest I let go. If it weren't for the fact, most prosecutors I know would take everything I have - including my lunch money - without thinking twice - I would probably still book today. It was the easiest money I had ever made in my life.  That is until I discovered the most lopsided trade on the planet, Hello Gold & Silver……..but thats a blog for another day…..

What a catch....

Some men are born mediocre, some men achieve mediocrity, and some men have mediocrity thrust upon them. - Heller

 We here at mytwocent$ always like to acknowledge greatness. The truest measure of greatness is of course the test of time. You know time - the eternal fire in which we all burn:)   It was 50 years ago one of the most influential books ever written, was published - Joseph Heller's Catch-22. While it was, admittedly, dark in tone, the ideas within were pure unadulterated genius. The expression "catch 22" has come to mean a no win situation, a situation where all choices are poor. The novel though is really more a statement on bureaucratic ineptitude and the circular logic that rules those type institutions - like Government for example. 


  The moral dilemmas raised in the novel were very intriguing - a sort of prisoners dilemma - where working with others yields a payday but selling them out yields an even bigger payday - thus the dilemma - for some of us anyway. The structure of the book was interesting as well. Its very similar to a Quentin Tarantino film in that single events are told from multiple points of view. As for that test of time, when you consider the issues raised in the novel in the context of today's current real-life events, its obvious this book is best in class.

July 4th Pop quiz....Real money at stake!

  One Genuine US Silver dollar fedexed to the first person who correctly posts answers to all ten questions in the comment section below, Sorry guys - no phone calls or emails will be eligible this time


1.  I financed the purchase of 5000 defective rifles off the North during the civil war for $3.50 each - then sold the whole lot to the south at $22 bucks each - the same day. Who am I
A. Mark Twain
B. General W. T. Sherman
C. J. P. Morgan

2. If you save $300 per month and get a return of 1% per month on that savings you will be worth a million dollars in
A. 25.5 yrs
B. 30.5 years
C. 36.5 years

3.  Standing on the moon, if you dropped ping pong ball & bowling ball from 5 feet
A. Bowling ball hits first
B. They hit same time
C. They float

4. According to Forbes most recent Billionaires list The "top ten" richest consist of
A. 5 w/just HS diploma, 4 US college dropouts, 1 US college Graduate
B. 2 w/HS diploma, 1 US College dropout, 7 US College Graduates
C. 1 w/HS diploma, 3 US College dropout, 6 US College Graduates

5. Baum's Wonderful Wizard of Oz is
A. True story
B. Childrens tale about Good vs. Evil where the protagonist wore ruby red slippers
C. Allegory about the dominant theme in1890's politics, namely the gold standard

6. At current market values (liquidation price), which of these could be traded for the most Gold
A. Duffle bag w/ 100 pounds of twenty dollar bills
B. Metric Ton of Silver
C. A ten carat flawless (best color) round cut diamond

7. If you took every man, woman & child on the face of the earth and lined them up in rows three feet between each person, it would take an area roughly the size of
A. Texas
B. Lake michigan
C. Delaware

8. The United states as it runs today  most closely resembles
A. Socialist democracy
B. Fascist cronyism
C. Communist dictatorship

9. Which of these  literary greats wrote a psychological drama about an individual who killed his pawnbroker?
A. Orwell
B. Rand
C. Dostoevsky

10. The  COT reports on Gold & Silver are invaluable as
A. They signal turning points in price
B. They provide the structure of the market
C. They are a leading indicator